Biofuel Producers in India benefit from 5% mandatory blending in fuel

The Indian Government has finally come out with a policy mandating 5% compulsory blending of ethanol with fuel. The Oil Marketing Companies will have to procure ethanol from the biofuel producers and in case of shortfall will have to import the fuel. Note 13 states had already imposed a 2% blending mandate and this will now increase to 5% for the whole country. Most developed countries like USA and Europe already have mandatory biofuel blending in fuels. The US has set very ambitious targets of blending in 22 billion gallons of biofuel with gasoline by 2022 and also subsidizes the industry heavily.

However the 2nd generation cellulosic biofuels have not grown sufficiently as the technology is still immature. This had led to a large diversification of food crops into producing ethanol for the transportation industry. This has led to a lot of criticism as it is leading to a global surge in food prices as major food producers like US divert corn for ethanol instead of exporting them as food and feed for livestock. While 5% blending of ethanol might be alright the Indian government needs to be careful in not increasing the limit as the country can scarcely afford to contribution to the rise in global food prices given that hundreds of millions of its own citizens go hungry every day.

The main beneficiaries of the this regulation will be the sugar companies in India who produce large volumes of ethanol during sugarcane processing like Balrampur Chini and ethanol equipment manufacturer Praj Industries.

The Cabinet Committee on Economic Affairs (CCEA) on Thursday gave its approval of the pricing formula for procurement of bio-ethanol by oil marketing companies (OMCs) as suggested by the expert committee. The procurement price of ethanol will be decided henceforth between oil companies and ethanol suppliers. This programme is currently being implemented in 13 States with blending level of about two per cent against a mandatory target of five per cent.

Sneha Shah

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